On May 1, 2008, about 1830 mountain standard time (MDT), a Robinson R22 Beta II, N331MD, collided with terrain near Prescott, Arizona. Guidance Helicopters, Inc., was operating the helicopter under the provisions of 14 Code of Federal Regulations (CFR) Part 91. The certified flight instructor (CFI) sustained serious injuries and the student pilot sustained minor injuries; the helicopter sustained substantial damage by a post crash fire. The local instructional flight departed Prescott about 1800. Visual meteorological conditions prevailed, and no flight plan had been filed. The CFI submitted a written report. This was his first instructional flight with this student. They did a preflight inspection of the helicopter together, started up, and departed northwest for the practice area. Once the student had a general understanding of the controls, they did an approach to a tire that terminated in a hover. The CFI was letting the student manipulate the controls more and more during the hover. The CFI set up the helicopter for a slight right quartering headwind to compensate for translating tendencies. The CFI stated that during hover, the helicopter exhibited pendulum action that is common for new students learning to hover. During one of the right lateral oscillations, the helicopter unexpectedly lost altitude. The right skid contacted the ground, and the helicopter rolled over onto its right side. Within seconds, it caught on fire. Both pilots exited immediately. The CFI stated that the airplane and engine had no mechanical failures or malfunctions during the flight. The CFI stated that he might have prevented the accident by maintaining a greater skid height while giving instruction, and stopping the lateral and aft movement sooner. He also could have stayed on the controls longer giving the student more time to become familiar with them. He thought that lowering the collective immediately might have prevented the rollover.